Sargent: Macmillan US 'will not settle with DoJ'

Macmillan US c.e.o. John Sargent has said the publisher will continue to fight its lawsuit with the Department of Justice over agency model collusion, despite Penguin having settled earlier this week. However Sargent said the publisher voluntarily negotiated new retailer e-book contracts shortly after the suit was filed.

In a letter to Macmillan's authors, illustrators and agents, posted online, Sargent said the publisher would not settle, despite being the only remaining publisher not to have done so, because the settlement agreement would be hard for many retailers to survive.

Sergent wrote: "Since the very beginning, the government's demands have never wavered in all our discussions. They still insist on the two year discounting regime that forms the heart of the agreement signed by the three settling publishers. It was our belief that Amazon would use that entire discount for the two years.

"That would mean the retailers who felt they needed to match prices with Amazon would have no revenue from e-books from five of the big publishers (and possibly the sixth) for two years . . . We felt that few retailers could survive this or would choose to survive this. Simultaneous discounting across the major publishers (you could think of it as government-mandated collusive pricing) would lead to an unhealthy marketplace. As we heard of each successive publisher settling, the need to support more retailers, both digital and bricks and mortar, became more important."

Sargent also said: "It is hard to settle when you have done nothing wrong."

However, he said that shortly after the DoJ suit was filed, Macmillan cancelled all its retailer e-book contracts and negotiated new ones, with the exception of one "whose term was not up yet". Sargent said all the new contracts are compliant with "the government's requests in their complaint", containing no most-favoured nations clauses or price limits, and allowing 10% discounting on individual books priced $13.99 and above. He said: "Needless to say, we continue to see the lawsuit as pointless and destructive. Meanwhile, the settling publishers have apparently reached terms with retailers. There is some discounting, but because it is not across the board the impact appears to be limited."

He added: "The legal bills look like the unit sales numbers for 50 Shades of Grey."

Meanwhile, Sargent also asserted that Macmillan is not in discussions "with anyone" over a possible merger, saying the publisher will continue to be "the smallest of the big publishers". He said: "You need a certain level of capital and infrastructure, but that does not require being a behemoth. We will be more than fine in the land of the giants. I expect we will continue to grow and prosper." He said, in his opinion, the Random/Penguin merger "is based on financial engineering, and as such is good for the financial statements of the two companies. I think others have the same sort of opportunity, but I have no idea if they are talking".

He said 26% of the company's total sales for 2012 have been digital, with the percentage of e-book sales remaining mainly consistent week by week through the year. He said: "Our e-book business has been softer of late, particularly for the last few weeks, even as the number of reading devices continues to grow. Interesting."

Sargent's letter also touches on DRM, stating that the initial results of Macmillan's decision to go DRM-free on its Tor imprint titles suggest "there was no increase in piracy".

Ending on an optimistic note, Sargent said: "More people are reading more books. The playing field in e-book retailing, while not even, has not yet tilted too far. There is a bright future out there."